Luxury lodging during a pandemic? Michigan hotels seek recovery signs

Hotel owners say they continue to lose money due to the lack of…

Luxury lodging during a pandemic? Michigan hotels seek recovery signs 1
Luxury lodging during a pandemic? Michigan hotels seek recovery signs 2

Birmingham — When the Daxton Hotel broke ground in 2018, owner Mark Mitchell never expected to be opening the luxury property during a pandemic — but he’s doing just that on Thursday at the northwest corner of Brown and Old Woodward.

“I’m excited to bring something great to the community,” said Mitchell, acknowledging the project is opening one year later than planned because of COVID-19 restrictions. It’s “something very different from what people expect in Michigan.”

The Daxton exudes an edgy, avant-garde feel. A large collection of artwork adorns the hotel, starring a mechanical horse in the lobby and a large, cage-like geode structure surrounding the bar. From its 12-foot ceilings and crown molding to the custom furniture and high-end finishes, Mitchell aims to create “oh, wow” moments to woo customers to one of Michigan’s toniest downtowns as it emerges from the pandemic.

The hotel industry has been shaken to its core during the past year as restrictions impacted travel plans, business went remote and people hunkered down during stay-at-home orders. Many hotels furloughed or laid off staff. Some closed their doors temporarily. Others, like the iconic Westin Book Cadillac Hotel in downtown Detroit, face the threat of foreclosure — or worse.

The toll continues to mount for hoteliers buffeted by continuous shocks from COVID-19: canceled sports seasons replaced by reduced-capacity venues; arts and culture programming forced online or occasionally outside; lucrative business travel replaced by virtual meetings known by their brand names of Zoom or Teams.

Hotel owners and hotel trade groups say they continue to lose money due to the lack of travel and events, although some parts of the industry, such as resort lodging, are expected to turn a corner sooner. Still, a return to pre-pandemic levels isn’t expected until 2024.

Justin Winslow, president of the Michigan Restaurant and Lodging Association, said he foresees higher occupancy rates for hotels as more people receive COVID-19 vaccines and the weather warms up. That is if the state’s recent spike in virus cases tapers off.

“We are clearly dealing with a temporary setback that is unfortunate in terms of Michigan’s recent surge,” he said. “I think it’s going to slow the total demand on the aggregate in the very short term, but there is still so much pent-up demand for a vacation — something that feels like the entertainment they haven’t been able to have for a year and a half.”

STR, a global hospitality data and analytics company, says hotel occupancy in Michigan remains significantly below pre-pandemic levels. Occupancy rates in the state were 46.2% for the same week in March, up from 25.8% last year, and down from pre-pandemic occupancy of 55.5% in 2019, the firm said.

Nationally, occupancy rates were 58.8% for the week ending March 20, up from 30.4% during the same week last year, but still down from the pre-pandemic occupancy of 69.4% in 2019, according to STR.

More: Madam restaurant opens Thursday in sumptuous Daxton Hotel in Birmingham

The lower occupancy rates are taking a financial toll on the hotel industry, particularly those properties that cater to conferences and other events. A rebound is likely to be affected by the pace of vaccinations, the leveling off of virus cases and how quickly consumers return to their travel habits.

According to commercial real estate research firm Trepp LLC, nationally more than 70% of hotel loans were behind their repayment schedule during the past year, said Manus Clancy, Trepp’s senior managing director. Trepp tracks about 25% of the overall hotel market, consisting of properties backed by commercial mortgage-backed securities loans.

At the Book Cadillac, the state’s COVID-19 restrictions cost the hotel revenue from more than 50 weddings, owner John Ferchill said earlier this month. He declined this week to discuss the hotel’s possible foreclosure.

Downtown Detroit Partnership CEO Eric Larson said that, according to the organization’s data, occupancy in the greater downtown area fell from a high of 80% to as low as 18% during the pandemic.

“It’s not necessarily surprising that the Book Cadillac, or any hotel for that matter, would be having some pretty significant challenges,” he said.

Interest in iconic hotels like the Book Cadillac remains high, Larson said, giving the landmark property hope for a rebound. It’s a well-run hotel at the top of the list for events: “It’s really more about the ability to sustain the operations during this very dramatic downturn in levels of use.”

Clancy has noticed a modest improvement in loan delinquency rates: “I would chalk that up to many of these borrowers think, ‘Hey if I’ve come this far, what’s a few months to hold on?’ 

“I think people are really buying into the narrative that the rebound will be explosive once we get to herd immunity, that we’re going to see a lot of pent-up demand for vacation travel and other things.”

Losses and layoffs

Jeff Katofsky, owner of the St. Clair Inn in St. Clair, said he’s lost millions in revenue during the past year. In early 2020, he was enjoying the recent reopening of the historic hotel, which he worked to restore for five years.

But new life at the inn came to a sudden halt in March 2020, when the onset of the COVID-19 pandemic in Michigan and state restrictions forced the event-focused hotel to close.

“It was devastating,” Katofsky said. “The build-up to opening the hotel was significant. We spent a lot of money, a lot of time staffing and training and all the things we need to do to open the hotel, and we had to shut it down. We had hundreds of events booked at the hotel. We had literally hundreds.”

According to the American Hotel and Lodging Association’s State of the Hotel Industry report, nationally more than 670,000 hotel industry operation jobs and nearly 4 million broader hospitality jobs were lost in 2020 because of the pandemic.

A letter dated Tuesday from hospitality trade groups to the National Governors Association and the United States Conference of Mayors asked policymakers to “place a high priority on the lodging industry” that is in danger of losing 10 years of hotel industry job growth.

“Twenty percent of leisure and hospitality jobs — 3.5 million in total — have been lost during the pandemic and have yet to return,” the hospitality industry groups wrote, “and the unemployment rate in the hospitality and tourism sector remains 300% higher than the rest of the economy.”

Claude Molinari, president and CEO of the Detroit Metro Convention & Visitors Bureau, said the hotel job losses have been widespread: “We’re talking about housekeepers and parking personnel and all the banquet and catering staff.

“Just think about the laundry services that support the hotel. They’re not there. The food suppliers. They’re not being utilized. It’s a vicious cycle. In everything that is the travel and hospitality and the hotel industry, it’s an ecosystem.”

The pandemic-induced slowdown forced Katofsky to lay off 250 people between St. Clair Inn and the Delta Hotel near the Detroit Metro Airport. Delta Hotel closed in August and reopened a couple of weeks ago. Katofsky said he’s starting to bring some employees back as needed.

For part of last year, staff at the St. Clair Inn offered curbside food pick-up, but it was difficult to run the kitchen under state guidelines.

“It takes a lot of bodies to run a full-service hotel,” he said. “This is not a limited-service hotel that’s got one person at a front desk and a maid. We operate with hundreds of people. You can’t do that when you can’t put them together. … If you can’t service your clients, you can’t be open.”

St. Clair Inn has yet to reopen.

Some hotels have gotten creative to stay in operation during the leaner months of the pandemic. The Detroit Foundation Hotel, operated by the Chicago-based Aparium Hotel Group that operates the new Daxton Hotel in Birmingham, offers in-room dining from the hotel’s restaurant, the Apparatus Room. 

“The demand was far more than we could expect,” said Michael Kitchen, partner with Aparium Hotel Group.

Despite some hotels experiencing losses, Daxton Hotel forged ahead with its opening. Earlier this week, staff put the finishing touches on the 151-room inn, which features a restaurant named Madam that also is opening Thursday.

The hotel sits on land that previously was the site of a small office building and parking lot. The light-filled guest rooms feature 450 original art pieces by 130 emerging artists from 55 countries.

“I have a passion for contemporary art,” Mitchell said, “so another thing I was also really excited about was to make it one of the top five art hotels in the world.” 

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Mitchell looks at the hotel as a multi-generational project. The longtime businessman said he has children ranging in age from 18 months to 26 years old.

“It’s very much a long-term hold,” he said. “I did it out of the love of the community and the passion to build something great. When the pandemic came, doing the hotel wasn’t a financial thing for me, so I didn’t freak out.”

Mitchell said the pandemic and the resulting layoffs in the industry afforded him the opportunity to recruit top talent, including Garrison Price, previously executive chef at Il Fiorista in Manhattan. 

Kitchen said Detroit Foundation Hotel and the Daxton Hotel are in a good position as boutique hotels. He expects both to enjoy pre-pandemic occupancy levels as early as mid-2022.

“Our assets are heavily transient-oriented, business and leisure,” he said. “They don’t drive a ton of group demand. … We are better positioned to realize the early impact of people starting to move again.”

Kitchen said he expects that to happen in the third and fourth quarter of this year: “I’d like to say people are quick to forget. As soon as everybody gets the green light to travel, people will be traveling.”

Stalled projects

In February 2020, Beaumont Health officials and other project partners announced construction of an extended-stay hotel to be called Hyatt House for Woodward Corners in Royal Oak. The hotel would provide convenient accommodations for the loved ones of patients who travel to Beaumont Royal Oak for specialized medical care.

Construction was to start in May 2020 on the 128-room, five-story hotel near Woodward and 13 Mile, with the hotel to open this year. However, COVID-19 delayed those plans.

This week, the lot remains empty, surrounded by fencing, with only a large Dumpster and a portable toilet on the site. Carolyn Wilson, chief operating officer for Beaumont Health, said Hyatt suspended new building during COVID-19.

“We hope to start as soon as possible,” she said.

Katofsky also put construction plans on hold for the 86-room Hotel Harrington in Port Huron. Renovations to the five-story building were about 60% finished when he halted work last year.

“Rushing to finish a hotel that I can’t open doesn’t make a whole lot of sense,” he said. 

Meanwhile, operators of some hotels say they’re already seeing business rebound. In a survey released this week, 54% of Michigan residents said they intend to take a vacation that would require an overnight stay in a hotel or similar accommodation in the next six months.

Liz Ware, vice president of sales and marketing for Mission Point Resort on Mackinac Island, said demand is rising among travelers who want to drive to vacation destinations. Some days in July are already booked at 100% capacity.

“The demand from the Michigan market is stronger now than it has been,” she said. “That goes back to the travel sentiment with people wanting a drive destination and Mackinac Island being a beautiful destination.”

Ware said Mission Point has been fortunate, but she recognizes some other hotels aren’t: “I think there are destinations that are aligned with where travel sentiment is now. Fortunately, Mackinac Island and Mission Point are.”

“There are other destinations that are not aligned with travel sentiment,” she said. “And what I would say is the hospitality industry has been through a really rough time and whenever and however you can support our friends at restaurants and hotels, we are most appreciative when you do so.”

Twitter: @CWilliams_DN

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